The Intelligent Investor_ The Definitive Book on Value Investing - Benjamin Graham [93]
Increasingly, fund managers are expected to specialize. Just as in medicine the general practitioner has given way to the pediatric allergist and the geriatric otolaryngologist, fund managers must buy only “small growth” stocks, or only “mid-sized value” stocks, or nothing but “large blend” stocks.6 If a company gets too big, or too small, or too cheap, or an itty bit too expensive, the fund has to sell it—even if the manager loves the stock.
So there’s no reason you can’t do as well as the pros. What you cannot do (despite all the pundits who say you can) is to “beat the pros at their own game.” The pros can’t even win their own game! Why should you want to play it at all? If you follow their rules, you will lose—since you will end up as much a slave to Mr. Market as the professionals are.
Instead, recognize that investing intelligently is about controlling the controllable. You can’t control whether the stocks or funds you buy will outper-forms the market today, next week, this month, or this year; in the short run, your returns will always be hostage to Mr. Market and his whims. But you can control:
your brokerage costs, by trading rarely, patiently, and cheaply
your ownership costs, by refusing to buy mutual funds with excessive annual expenses
your expectations, by using realism, not fantasy, to forecast your returns7
your risk, by deciding how much of your total assets to put at hazard in the stock market, by diversifying, and by rebalancing
your tax bills, by holding stocks for at least one year and, whenever possible, for at least five years, to lower your capital-gains liability
and, most of all, your own behavior.
If you listen to financial TV, or read most market columnists, you’d think that investing is some kind of sport, or a war, or a struggle for survival in a hostile wilderness. But investing isn’t about beating others at their game. It’s about controlling yourself at your own game. The challenge for the intelligent investor is not to find the stocks that will go up the most and down the least, but rather to prevent yourself from being your own worst enemy—from buying high just because Mr. Market says “Buy!” and from selling low just because Mr. Market says “Sell!”
If you investment horizon is long—at least 25 or 30 years—there is only one sensible approach: Buy every month, automatically, and whenever else you can spare some money. The single best choice for this lifelong holding is a total stock-market index fund. Sell only when you need the cash (for a psychological boost, clip out and sign your “Investment Owner’s Contract”—which you can find on p. 225).
To be an intelligent investor, you must also refuse to judge your financial success by how a bunch of total strangers are doing. You’re not one penny poorer if someone in Dubuque or Dallas or Denver beats the S & P 500 and you don’t. No one’s gravestone reads “HE BEAT THE MARKET.”
I once interviewed a group of retirees in Boca Raton, one of Florida’s wealthiest retirement communities. I asked these people—mostly in their seventies—if they had beaten the market over their investing lifetimes. Some said yes, some said no; most weren’t sure. Then one man said, “Who cares? All I know is, my investments earned enough for me to end up in Boca.”
Could there be a more perfect answer? After all, the whole point of investing is not to earn more money than average, but to earn enough money to meet your own needs. The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go. In the end, what matters isn’t crossing the finish line before anybody else but just making sure that you do cross it.8
Your Money and Your Brain
Why, then, do investors find Mr. Market so seductive?